Q3 2023 Precision Drilling Corp Earnings Call
[music].
Speaker 1: transcript
Speaker 1: Or.
Okay.
Speaker 2: transcript
Speaker 2: Good day and thank you for standing by. Welcome to the Precision Drill Incorporation 2023 third quarter conference call. I would like to hand the conference over to Lavon Fedunek, Director of investor relations. Please go ahead.
Good day, and thank you for standing by walking through the precision drilling Corporation 2023 third quarter Conference call I would now like to hand, the conference over to live on.
The director of Investor Relations. Please go ahead.
Speaker 3: transcript
Speaker 3: Welcome to Precision's third quarter earnings conference call and webcast. Participating on today's call with me will be Kevin Neveu, President and CEO , and Kerry Ford, our CFO . Earlier this morning, Precision reported strong third quarter results, which Kerry will review with you, followed by an operational update and outlook commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions.
Welcome to precision <unk> third quarter earnings conference call and webcast participating on today's call with me will be Kevin W. President and CEO and carry forward our CFO.
Earlier this morning precision reported strong third quarter results, which carry what would it be with you followed by an operational update and outlook commentary from Kevin.
Once we have finished our prepared comments, we will open the call to questions.
Speaker 3: transcript
Speaker 3: Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties.
Some of our comments today will refer to non I F. R. S financial measures and will include forward looking statements, which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures forward looking statements and risk factors.
Speaker 3: transcript
Speaker 3: Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements, and risk factors.
Speaker 3: transcript
Speaker 3: As a reminder, we express our financial results in Canadian dollars unless otherwise indicated.
As a reminder, we expressed our financial results in Canadian dollars unless otherwise indicated.
Speaker 3: transcript
Speaker 3: Before I pass the call over to Kevin and Carrie, I would like to remind listeners of our CWC energy services acquisition, which we announced in early September .
Before I pass the call over to Kevin and Carrie I would like to remind listeners of our CWC energy services acquisition, which we announced in early September.
Speaker 3: transcript
Speaker 3: This acquisition will position Precision as the premier well service provider in Canada and bolster our drilling operations in both the US and Canada.
This acquisition will position precision as the Premier World service provider in Canada, and bolster our drilling operations in both the U S and Canada.
Speaker 3: transcript
Speaker 3: With the acquisition, Precision adds to its marketed fleet 62 service rigs and 7 drilling rigs in Canada, plus 11 drilling rigs in the US, which includes 7 AC triples.
With the acquisition precision adds to its marketed fleet 62 service rates and seven drilling rigs in Canada, plus 11 drilling rigs in the U S, which includes seven AC triples.
Speaker 3: transcript
Speaker 3: We expect this acquisition to close within the next couple of weeks and generate a creative cash flow on a per share basis in 2024. With that, I'll pass it over to Carrie.
We expect this acquisition to close within the next couple of weeks and generate accretive cash flow on a per share basis in 'twenty 'twenty four with that I'll pass it over to Kerry.
Speaker 4: transcript
Speaker 4: Thank you, Lebron. Precision's two-three financial results reflect the resiliency of our high-performance, high-value business model, an organizational focus on cash flow and return of capital.
They can have on precision Q3 financial results reflect the resiliency of our high performance high value cases.
Paul and organizational focus on cash flow and return of capital.
Speaker 4: transcript
Speaker 4: leading our expectations for just leave it up and further strengthen our balance.
Leading our expectations for adjusted EBITDA further strengthening our balance sheet.
Speaker 4: transcript
Speaker 4: During the quarter, just $115M was driven by healthy drilling activity, improved pricing, and stripped costs.
During the quarter adjusted EBITDA of $115 million was driven by healthy drilling activity improved pricing and strict cost control.
Speaker 4: transcript
Speaker 4: and included a share-based compensation charge of $31 million. Without this charge, adjusted EBITDA would have been $146 million, which compares to normalized EBITDA of $126 million in Q3 2022.
And included a share based compensation charge of $31 million without this charge adjusted EBITDA would have been $146 million, which compares to normalized EBITDA of $126 million in.
Q3 2022.
60%.
Speaker 4: transcript
Speaker 4: Margins in Canada were higher than guidance, resulting from stronger than expected pricing and cost recoveries, higher ancillary revenues, and improved cost per...
Margins in Canada were higher than guidance, resulting from stronger than expected pricing and cost recoveries higher.
Ancillary revenues and improved cost performance.
Speaker 4: transcript
Speaker 4: In the US, margins were lower than guidance, largely due to an increase in operating costs driven by increased repair and maintenance costs and lower fixed cost absorption, as we're maintaining higher overhead and anticipation of increased activity in the first part of 2020.
In the U S margins were lower than guidance largely due to increased operating costs, driven by increased repair and maintenance costs and lower fixed cost absorption as we're maintaining higher overhead in anticipation of increased activity in the first part of 2024.
Speaker 4: transcript
Speaker 4: In the US drilling activity for precision averaged 41 rigs in Q3, a decrease in 10...
In the U S drilling activity for precision averaged 41 rigs in Q3, a decrease of 10 rigs from Q2.
Speaker 4: transcript
Speaker 4: Daily operating margins in Q3, excluding the effects of turnkey and IBC, were $11,941, a decrease of $1,563 from Q2.
Daily operating margins in Q3, excluding the impact of turnkey and ITC were 11941 U S dollars a decrease of one.
For U S dollars from Q2.
Speaker 4: transcript
Speaker 4: For Q4, we expect margins, excluding the impacts of Turnkey and IBC, to be in line with Q3 in the US$11,500 to US$12,000 range.
For Q4, we expect margins, excluding the impact of Turkey, and I B C.
In line with Q3 margins in the 11500 U S dollars to 12000 U S dollar range.
Speaker 4: transcript
Speaker 4: In Canada, drilling activity for precision averaged 57 rigs, a slight decrease in two rigs from Q3 2022. D operating margins in the quarter were $13,913, an increase of $1,830 from Q2 2023.
In Canada drilling activity for precision averaged 57 rigs a slight decrease of two rigs from Q3 2022.
Daily operating margins in the quarter.
<unk> thousand $913, an increase of $1830 from Q2 2023.
Speaker 4: transcript
Speaker 4: For Q4, our daily operating margins are expected to average over $15,000.
Q4, our daily operating margins are expected to average over $2000 and.
Speaker 4: transcript
Speaker 4: an increase of over $1,000 from Q3 levels due to ancillary winter equipment and improving prices.
An increase of over $1000 from Q3 levels do you ancillary what's your equipment and improving pricing.
Speaker 4: transcript
Speaker 4: We continue to build our North American contract book with Q4 2023 drilling rig.
We continued to build our north American contract book with Q4 2023 drilling rigs.
Speaker 4: transcript
Speaker 4: of 57 under taker pay term contracts on average for the 4th quarter of 2023.
At 57 under take or pay term contracts on average for the fourth quarter of 2023.
Speaker 4: transcript
Speaker 4: In addition, we recently signed several term contracts for work preventing early 2020.
In addition, we recently signed several term contracts for work commencing in early 2024.
Speaker 4: transcript
Speaker 4: internationally drilling activity for precision in the quarter average six rates
Internationally drilling activity for precision in the quarter averaged six rigs.
Speaker 4: transcript
Speaker 4: international average day rate for 51,570 US dollars, an increase of 3% from the...
National average day rates were 51570 U S dollars.
And increased 3% from the prior year due to rig mix.
Speaker 4: transcript
Speaker 4: We recently activated our fourth rig in Kuwait and expect the fifth rig to be activated in the next few weeks.
We recently activated a fourth rig in Kuwait and expect a fifth rig to be activated in the next few weeks.
Speaker 4: transcript
Speaker 4: We expect earnings in our international business to increase approximately 50% from 2023 to 2020.
We expect earnings in our international business to increase approximately 50% from 2023 to 2024.
Speaker 4: transcript
Speaker 4: Moving to our CMP segment, adjusted EBITDA this quarter was $14 million, down slightly compared to the prior year quarter with 10% fewer well servicing hours offset by higher pricing and market.
Moving to our CMP segment adjusted EBITDA This quarter was $14 million down slightly compared to the prior year quarter, with 10% fewer well servicing hours offset by higher pricing and margins.
Speaker 4: transcript
Speaker 4: Moving to the balance sheet, we are committed to reducing debt by over $500 million between 2022 and 2025 and achieving a normalized leverage level of below one time.
Moving to the balance sheet, we are committed to reducing debt by over $500 million between 2022, and 2025 and achieving a normalized leverage level of below one.
Speaker 4: transcript
Speaker 4: Our debt reduction target for 2023 is $150 million, and we plan to allocate 10% to 20% of free cash flow before principal payments directly to share.
Our debt reduction target for 2023 is a $150 million and we plan to allocate 10% to 20% of free cash flow before principal payments directly to shareholders.
Speaker 4: transcript
Speaker 4: During the quarter, we reduced debt by $26 million and have now reduced debt by $126 million a year to date.
During the quarter, we reduced debt by $26 million and are now reduced debt by $126 million year to date.
Speaker 4: transcript
Upon closing the CWC acquisition, we will assume CWC debt make cash payments to CWC shareholders and incurred transaction costs, all totaling in the $60 million $70 million range.
Speaker 4: transcript
Speaker 4: Despite incurring these cash costs, we still expect to meet our annual debt reduction target of $150 million, pointing to robust cash flow expectations in the fourth quarter.
Aspiring currently cash cost, we still expect to meet our annual debt reduction target of $150 million pointing to robust cash flow expectations in the fourth quarter.
Speaker 4: transcript
Speaker 4: As of September 30th, our long-term debt position net of cash was approximately $915 million and our total liquidity position was $621 million, excluding letters of credit.
As of September 30, our long term debt position net of cash was approximately $915 million and our total liquidity position was $621 million excluding letters of credit.
Speaker 4: transcript
Speaker 4: Our net debt to trailing 12 month EBITDA ratio is approximately 1.7 times and our average cost of debt is approximately 7%
Our net debt to trailing 12 month EBITDA ratio was approximately one seven times and our average cost of debt is approximately 7%.
Speaker 4: transcript
Speaker 4: We expect our net debt to adjust even our ratio to be below 1.5 times by year end with net debt of approximately $900 million and a run rate interest expense of approximately $65 million.
We expect our net debt to adjusted EBITDA ratio to be below one five times by year end with net debt of approximately $900 million and our run rate interest expense of approximately $65 million.
Speaker 4: transcript
Speaker 4: Our full year 2023 capital plan has increased from $195 million to $215 million, largely the result of signing term contracts with upgrade capital paid back inside of the term of the contract. For several of these contracts, we received cash upfront from the customer.
Our full year 2023 capital plan has increased from $195 million to $215 million largely result of signing some contracts with upgrade capital paid back inside of the term of the contract for.
Several of these contracts, we received cash upfront from the customer.
Additional annual guidance for 2023.
Speaker 4: transcript
Speaker 4: which does not consider impacts from the CWC acquisition, include depreciation at $290 million and SG&A at $90 million before share-based compensation.
Which does not consider impacts from the TWC acquisition include depreciation at $290 million in SG&A SG&A at $90 million before share based compensation expense.
Speaker 4: transcript
Speaker 4: We expect cash interest expense to be approximately $80 million for the year and cash taxes to remain low with an effective tax rate of approximately $25 million.
We expect cash interest expense to be approximately $80 million for the year free cash taxes to remain low with an effective tax rate of approximately 25%.
Speaker 4: transcript
Speaker 4: Year to date, we have had share-based compensation charges of $22 million.
Year to date, we have had share based compensation charges of $22 million.
Speaker 4: transcript
Speaker 4: As previously stated, we expect our 2023 share-based compensation expense to range between $20 million and $40 million, for the share price range of $60 to $100.
As previously stated we expect our 2023 share based compensation expense to range between $20 million and $40 million for the share price range of 60 to $100 with the potential to increase or decrease other $15 million based upon relative share price performance and our multiple between zero and two times.
Speaker 4: transcript
Speaker 4: potential to increase or decrease another $15 million based on relative share price performance and a multiple between zero and two times. With that
With that I'll now turn the call over to Kevin.
Speaker 4: transcript
Speaker 4: Thank you, Carrie and good afternoon. I'm pleased with our third quarter results with improved revenue and cash flow compared to the same period last year, despite lower industry activity in North American markets.
Thank you Carrie and good afternoon.
Pleased with our third quarter results with improved revenue and cash flow compared to the same period last year, despite lower industry activity in North American markets.
Speaker 4: transcript
Speaker 4: I commend everyone in Precision's organization for their precise execution and safety, excellent operational performance, strict financial discipline, and the continued focus on cash management, which was demonstrated across all Precision business segments during the quarter.
And to everyone in precision organization for their precise execution and safety.
Operational performance strict financial discipline.
And the continued focus on cash management, which was demonstrated across all precision business segments during the quarter.
Speaker 4: transcript
Speaker 4: I continue to be very encouraged by the support of commodity price on metals, but also by the strict capital discipline evident across this industry. And this discipline begins with the investors' expectations for shareholder returns and a continued assistance for industry capital discipline. Our customers are functioning...
I continue to be very encouraged by the support of commodity price levels, but also by the strict capital discipline evident across this industry.
When it begins with the investors' expectations for shareholder returns and our continued assistance for industry capital discipline.
Our customers are functionally very well in this environment.
Speaker 4: transcript
Speaker 4: They are not responding to short-term commodity price signals or volatility. They are managing budgets with saying well within cash flow. And most importantly, they're focusing on efficiency and performance.
They're not responding to short term commodity price signals or volatility.
We're managing budgets are staying well within cash flow and most importantly, theyre focusing on efficiency and performance.
Speaker 4: transcript
Speaker 4: And nowhere is this more important than our Canadian segment where broad industry activity is down 6% during the third quarter compared to last year as our customers remain highly disciplined staying within fixed budgets. western U.S. Kayaking!
And nowhere is this more important that our Canadian segment were broad industry activity is down 6% during the third quarter compared to last year as our customers remain highly disciplined stay within fixed budgets yet.
Speaker 4: transcript
Speaker 4: Our 29 Super Triple rigs are fully utilized this year compared to 25 at the same time last year. I remind you we'll be adding one more Super Triple to our fleet on January 1st through an upgrade we announced late last year.
Our 2009 Super Triple rigs are fully utilized this year compared to 25 at the same time last year and to remind you will be adding one more super triple to our fleet on January one through an upgrade we announced late last year.
Speaker 2: transcript
Speaker 2: Today we're also running 32 super singles, and this would be the highest Q3 utilization for this request since early last decade.
Today, We're also running 32 Super singles and this would be the highest Q3 utilization for this request since early last decade.
Speaker 2: transcript
Speaker 2: In light of the high super spec rig demand, we have customers anxious to commit to firm taker paid term contracts, securing rig access.
In light of the highest super spec rig demand, we have customers anxious to commit to firm take or pay term contracts securing rig access.
Speaker 2: transcript
Speaker 2: Currently, our Canadian book includes 27 rakes under term contracts. And 17 of those have two-year-plus terms. I'll remind you that the Canadian market term takeer paid contracts, which is initially...
Currently our Canadian book includes 27 rigs under term contracts and 17 of those have two year plus terms and remind you that the Canadian market.
Term take or pay contracts with traditionally exceedingly rare.
Speaker 2: transcript
Speaker 2: Notably, we recently booked several customer contracts, which include pad walking and depth extending upgrades. And those rigs are required for the winter 2024 drilling season. And this necessitated increasing our current year capital budget as Terry described earlier.
Notably, we recently booked several customer contracts, which include pad walking the depth extending upgrades and those rigs are required for the winter 2024 drilling season, and this necessitated increasing our current year capital budget as Terry described earlier.
Speaker 2: transcript
Speaker 2: I'll also reiterate Kerry's comments that the capital will pay back within the contract period, and the enhanced margins will continue for the duration of the rigs operation of life.
I'll also reiterate Carey's comments that the capital will pay back within the contract period.
And it has margins will continue for the duration of the rigs operational life.
Speaker 2: transcript
Speaker 2: Also for several of these contracts, customers provided us with advanced cash payments upfront as we work hard to minimize our cash outflows.
Also for several of these contracts customers.
Provided us with advanced cash payments upfront as we work hard to minimize our cash outflows.
Speaker 2: transcript
Speaker 2: Our outlook for Canada remains uniquely strong. Early in 2024, two major hydrocarbon pipe projects will be started up.
Our outlook for Canada remains a uniquely strong.
Early in 2020 for two major hydrocarbon pipe projects will be started up the <unk>.
Speaker 2: transcript
Speaker 2: The Coastal Gas Link pipe set to deliver natural gas to the LNG Canada project, and trans-mountain expansion adding almost 700,000 barrels per day of oil export capacity.
So gasoline type set to deliver natural gas to the LNG, Canada project.
On the Trans mountain expansion, adding almost 700000 barrels per day of oil export capacity.
Speaker 2: transcript
Speaker 2: For Canada, these projects are absolute game changers, resulting in significantly improved upstream commodity prices for our customers, deep bottle-licking production, and providing global market access for Canadian energy.
For Canada. These projects are absolute game changers, resulting in significantly improved upstream commodity prices for our customers deep bottlenecking production and providing global market access for Canadian energy.
Speaker 2: transcript
Speaker 2: Now I see these independent projects as complementing each other.
Now ICD independent projects is complementing each other.
Speaker 2: transcript
Speaker 2: And that is to say, the follicular condensate produced by the Monteney gas wells. It's sold commercially as billiwant to the heavy oil producers to enable heavy oil shipping through pipelines. So this significantly improves the economics of the Monteney gas producers who are ultimately focused on the LNG exports of the longer term.
And that is to say that the liquid condensate produced by the Montney gas wells the sold commercially as diluent to the heavy oil producers to enable heavy oil shipping through pipelines, so that significantly improves the economics for the Montney gas producers. We are ultimately focused on the LNG exports over the longer term.
Speaker 2: transcript
Speaker 2: Currently, the increased oil export capacity of TMX will serve to reduce the Western Canada Select price discount, significantly improving economics for heavy oil customers.
Concurrently the increased oil export capacity of Tms will serve to reduce the western Canada select price discount significantly improving economics for heavy oil customers. So.
Speaker 2: transcript
Speaker 2: So for precision, the result is that the natural gas filling in the Montenegro is growing to meet the imminent needs of Ellen G. Canada. And heavy oil drilling has rebounded to level, not experienced since 2014. And all of this is evidence in our records to perturple demand and our strong super single demand. So this is truly a game changer for-
So for precision. The result is that the natural gas drilling in the Montney is growing to meet the immediate needs of LNG, Canada and heavy oil drilling has rebounded to levels not experienced since 2014.
All of this is evidenced in our records Super Triple demand were strong Super singles.
So this is truly a game changer for precision Canadian drilling market.
Speaker 2: transcript
Speaker 2: with term contracts providing revenue stability, reduced seasonality with pad rigs drilling throughout breakup, market visibility extending beyond seasonal commodity price volatility, and all of these factors setting us up for deliver sustainable shoulder returns commence with our asset base and providing opportunities for further expansion in our daily footprint.
With term contracts, providing revenue stability reduced seasonality with pad rigs drilling through breakup market visibility extending beyond seasonal commodity price volatility and all of these factors setting us up to deliver sustainable shareholder returns commensurate with our asset base, while providing opportunities for further expansion of our video footprint.
Speaker 2: transcript
Speaker 2: Today we have 68 rigs running, actually up one from our press release, which was reporting yesterday's activity. They expect to be in the low seventies before the Christmas pause.
Today, we have 68 rigs running actually up one from our press release, which was reporting yesterday as activity.
To be in the low seventies before the Christmas pause.
Speaker 2: transcript
Speaker 2: Customer planning for winter suggests a strong and fast start to 2024, with customer demand exceeding 23 levels.
Customer planning for winter suggests a strong start to 2024 with customer demand exceeding 23 23 levels. So.
Speaker 2: transcript
Speaker 2: We look forward to the addition of the CWC drilling rigs and crews, and we expect that precision-combined activity, this winter, could be up 10 to 15 percent from last year.
So we look forward to the addition of the CWC drilling rigs and crews and we expect that precision combined activity.
It could be up 10% to 15% from last year.
Speaker 2: transcript
Speaker 2: Leading edge day rates for our super triples are now in the mid 30s and for our conventional super singles in the mid 20s, while our pad equipped super singles have now moved up into the low 30s thousands per day range.
Leading edge day rates for our Super triples are now in the mid <unk> and for our conventional Super singles to mid twenties, while our cat equipped Super singles have now moved up into the low 30 thousands per day range.
Speaker 2: transcript
Speaker 2: In particular, excess customer demand for precision's alpha-equipped super-triple rigs is seemingly in the range of 7 to 10 additional rig opportunities we're considering. I think the likelihood...
In particular excess customer demand for our precision elfa equipped super Triple rigs the seemingly in the range of seven to 10 additional rig opportunities were considered.
I think the likelihood that we secure our.
Speaker 2: transcript
Speaker 2: customer paid redeployment of at least one or two supertables from the US to Canada later next year is increasing.
Customer paid redeployment of at least one or two super triples in the U S to Canada later next year is increasing.
Speaker 2: transcript
Speaker 2: With our super singles, the demand tends to be more seasonal, with what you're being to peak season, where demand could usurp our rig availability by 10 or more rigs.
With our Super singles, the demand tends to be more seasonal with would you be into peak season, where demand could outstrip, our availability by 10 or more rigs.
Speaker 2: transcript
Speaker 2: So we expect these market demand signals may lead to additional opportunities for customer-funded upgrades, for pad drilling and longer-reach horizontal capabilities, and certainly stimulate further customer interest in ticker-paid term contracts so they can secure access to the rig.
So we expect these market demand signals may lead to additional opportunities for customer funded upgrades for pad drilling.
Longer reach horizontal capabilities, and certainly stimulate further customer interest and take or pay term contracts. So they can secure access to the rigs.
Speaker 2: transcript
Speaker 2: Now, turning to the lower 48, the capital discipline I've described in Canada is at work in every US base.
Now turning to the lower 48, the capital discipline of described in Canada is our work at every U S basis in.
Speaker 2: transcript
Speaker 2: In the near term, it's meant that natural gas drilling has slowed down over the course of 2023. And the increases in oil targeted drilling we expected earlier this year have failed to materialize as our customers continue to effectively manage their drilling budget.
In the near term, it's meant that natural gas drilling has slowed down over the course of 2023 and the increases in oil targeted drilling we expected earlier this year a failed to materialize as our customers continue to tightly manage their drilling budgets. However.
Speaker 2: transcript
Speaker 2: However, we continue to see customers optimizing drilling efficiency by hydrating rigs, focusing on pad drilling and extending lateral length.
We continue to see customers optimizing drilling efficiency by high grading rigs focusing our pad drilling we're extending lateral lengths. This.
Speaker 2: transcript
Speaker 2: This folks on efficiency is also continuing to draw customer interest in our ELF automation platform or ELF apps and is driving interest in our evergreen best battery energy storage systems and other diesel fuel savings solutions.
This focus on efficiency is also continuing to drive customer interest in our <unk>.
Automation platform, our alpha apps is driving interest in our evergreen Bes battery energy storage systems and other diesel fuel savings solutions.
Speaker 2: Today we have 44 rigs operating in the US and seem to be in the trough. Customer indications and interest indicate an increase in activity as budgets reload for 2024. We expect to see some of these rigs activated later this year.
Today, we have 44 rigs operating in the U S. It seemed to be in the drop.
<unk> indications and interest.
An increase in activity as budgets reload for 2024, and we expect to see some of these rigs activated later this year.
Speaker 2: transcript
Speaker 2: During the third quarter, we continued to experience strong customer interest in our Alpha-equipped Super Triple Rake.
During the third quarter, we continued to experience strong customer interest in our alpha.
Super Triple rigs.
Speaker 2: transcript
Speaker 2: beginning of the year we've added five public EMPs to our customer list and increased our share with two others as we transition to more oil-based work and less private company exposure.
Since the beginning of the year, we've added five public e&ps to our customer list and increased our share with two others as we transition to more oil based work and less private company exposure.
Speaker 2: transcript
Speaker 2: Now, super spec rig supply remains in tight availability. During the third quarter, we secured a paid upgrade commitment from a customer to cover the cost of increasing the horizontal depth capability of precision super triple. And during the year, we've actually needed 12 other similar upgrades.
Now a super spec rig supply remains tight availability during the third quarter, we secured a paid upgrade commitment from a customer to cover the cost of increasing the horizontal depth capability of a precision super triple and during the year. We've executed 12 other similar upgrades and these upgrades include enhancements to the mud pumping capability there.
Speaker 2: transcript
Speaker 2: And these upgrades include enhancements to the month-coming capability, the drill pipe rocking capacity, and targeting longer retrozenal wells. And some of these also include evergreen enhancements to improve the fuel efficiency of the rig. We expect to see more of these customer paid upgrades emerging in 2024.
Drill pipe racking capacity of targeting longer reach horizontal wells and some of these also include evergreen enhancements to improve the fuel efficiency of the rig.
So we expect to see more of these customer paid up eight upgrades emerging in 2024.
Speaker 2: transcript
Speaker 2: Rig pricing and leading edge rates remain stable, as the most capable high specification rigs remain in tight supply. The pricing discipline remains a core strategy across the super spec land market industry.
Rig pricing alleviates rates remained stable.
The most capable high specification rigs read of tight supply with pricing discipline remains a core strategy across the super spec land market industry.
Speaker 2: transcript
Speaker 2: I'm very excited to add the 8 CWC rigs and crews currently operating in Wyoming. We see the Powder River Basin as an excellent opportunity for precision to expand our U.S. operations in 2024.
I'm very excited to add the eight CWC rigs and crews currently operating in Wyoming.
The powder River basin as an excellent opportunity for precision to extend our U S operations in 2024.
Speaker 2: transcript
Speaker 2: Now turning towards our national business, as Terry mentioned, we activated our fourth rigging to wait during the third quarter, and expect the fifth rig to start off early to mid-November. Fourth rigs are activating several weeks later that we previously got it. And these delays were entirely due to client planning delays, not precision issues.
Now turning towards your national business with <unk>.
We mentioned, we activated our fourth rig in Kuwait during the third quarter, we expect the fifth rig to start up in early to mid November 4th.
Both rigs are activating several weeks later than we previously guided and these delays were entirely due to client planning delays not precision initiatives.
Speaker 2: transcript
Speaker 2: The capital spending to reactivate those rigs is largely complete, and the five-year contract for each rig will commence when the rig begins operation.
Our capital spending to reactivate those rigs is largely complete and the five year contract for each rig will commence when the rig begins operations.
Speaker 2: transcript
Speaker 2: By mid November , we'll have all 5 rigs in Kuwait operating and 3 rigs in the Kingdom of Saudi Arabia running for a total of 8 rigs. We'll continue to bid all 5 idle rigs the opportunity to cross the Caribbean Gulf.
By mid November we will have all five rigs in Kuwait operating three rigs.
Think about Saudi Arabia, Libya running for a total of eight rigs and will continue to bid all five idle rigs opportunity across maybe ingalls.
Speaker 2: transcript
Speaker 2: In our well-servicing segment, Canadian industry well-servicing activity, noticeably slow in throwing the third quarter as our customers digested.
In our well servicing segment.
Gideon industry, well servicing activity noticed noticed was slow during the third quarter as our customers digested.
Speaker 2: transcript
Speaker 2: The cost increases, collided surfaces inflation, labor costs, and material costs.
The cost increases related to services inflation labor costs and material costs.
Speaker 2: transcript
Speaker 2: We see a backlog of previously planned activity building up. I don't know if you didn't see a significant increase in activity. Next, expect us to continue it to next year.
See a backlog of previously planned activity building up <unk>.
But you didn't see a significant increase in activity. We expect this to continue into next year.
Speaker 2: transcript
Speaker 2: I'm also very encouraged by the strong performance we see in the CWC Well Services Group and look forward to integrating the people of CWC and their operations into our business later this quarter.
I'm also very encouraged by the strong performance, we see in the CWC while services group.
Look forward to integrating.
The people of CWC in their operations into our business later this quarter.
Speaker 2: transcript
Speaker 2: So to wrap up my comments today, I'm thrilled that despite a weaker market than most would have expected, precision is on track on all three strategic priorities. We also created the financial flexibility to execute a meaningful Canadian consolidation transaction. And we continue to have the flexibility to invest in our fleet to be customer backed, rig upgrade opportunities. And with that, I'll now turn the call to the next speaker.
So to wrap up my comments today Im thrilled that despite a weaker market than most would have expected precision is on track on all three strategic priorities.
We also created the financial flexibility to execute a meaningful Canadian consolidation transaction and we continue to have the flexibility to investor fleet to be customer back rig upgrade opportunities.
With that I'll now turn the call back to the operator for your questions.
Speaker 5: transcript
Speaker 5: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1 1 on your telephone. If your question has been answered or you wish to move yourself from the queue, please press star 1 1 again. We'll pause for a moment while we compile our Q&A roster.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone. If your question has been answered the question yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Aaron Macneil with TD Cowen Your line is open.
Afternoon, and thanks for taking my questions. Kevin I can appreciate that there is a lot of value in keeping your promises on the debt reduction.
Especially in light of the track record over multiple years, but sort of putting that aside.
How does debt reduction compete today for capital at the end of CIB.
The prevailing valuation and how should we think about that in the context of your strategic priorities for next year.
Yes go.
Speaker 4: transcript
Speaker 4: Aaron, so I'll take that one. You know, the debt reduction still remains front and center, and we've put out various specific targets for 2023, and then the two years following this year. It's worth committed to doing that, as we have more free cash flow.
Go ahead Gary.
Darren.
I'll take that one.
Debt reduction still remain front and center and we've put out very specific targets for 2023 and then the two years following this year.
We're committed to doing that as we have more free cash flow.
Speaker 6: transcript
Speaker 6: We should be able to expand the amount that we allocate towards share repurchases. This year it's 10 to 20% of our pre-cash flow, which would put it kind of in the $15 to $30 million range of share repurchases. Next year, if our cash flow outlook improves, we should be able to increase that. Got it.
We should be able to expand the amount that we allocate towards share repurchases. This year at 10% to 20% of our free cash flow, which would put it is kind of in the $15 million to $30 million range of share repurchases.
Next year, if our cash flow outlook improves we should be able to increase that.
Got it and.
Gary I know you gave guidance for Q4 margins in the U S. In your prepared remarks, but I'm, hoping you can sort of give us a better sense of the moving parts I mean, you mentioned the higher staffing levels.
R&M like how much of that was.
I don't want to call it one time, but maybe abnormal and what sort of.
Speaker 4: transcript
Speaker 4: Yes, so I think if you think about Q3 and Q4, top line, there won't be a whole lot of movement. And in the cost that we incurred in Q3, a lot of those will repeat in Q4. So that...
Recurring.
Yes, So I think if you think about Q3 and Q4 top line there won't be a whole lot of movement.
And the costs that we incurred in in Q3, a lot of those will repeat in Q4, it so that.
Speaker 4: transcript
Speaker 4: That goes into the morning guidance that we provided.
That goes into the margin guidance that we provided.
Speaker 4: transcript
Speaker 4: As Kevin mentioned our Q2 call, we were going to have the rig count kind of moving up and down a little bit around this kind of low 40s level. And that means there's a bit more rig churn than we typically have, which causes a little bit more cost. And as I mentioned, we're carrying a bit more overhead.
As Kevin mentioned, our Q2 call we were going to have the rig count kind of moving up and down a little bit around this kind of low <unk> 40 level and that means there is a bit more rig churn than we typically have which causes a little bit more cost and as I mentioned, we're carrying a bit more overhead.
Speaker 4: transcript
Speaker 4: then we typically with this activity level because we do things that activity
We typically with this activity level, because we do think that activity is going to increase but for your guidance I would point to.
Speaker 4: transcript
Speaker 4: But for your guidance, I would point to a similar operating cost in Q4 that we had in Q3.
A similar operating cost in Q4 that we had in Q3.
Got it okay. Thanks, I'll turn it back thanks Darren.
Speaker 7: transcript
Speaker 7: Our next question comes from Luke Lemoine with Piper Sandler. Your line is open.
Our next question comes from Luke Lemoine with Piper Sandler Your line is open.
Speaker 8: transcript
Speaker 8: Hey, good afternoon, Kevin, I believe you talked about 7 or 10 additional opportunities in Canada and maybe. You can move 1 to 2 US super triples in the Canada. When you're looking at opportunities like that, are these. Kind of to your terms that you're targeting to make the move from the US to Canada or. How are you thinking about.
Hey, good afternoon.
Kevin I believe you talked about seven to 10 additional opportunities in Canada, and maybe you can move one or two U S Super triples in Canada.
When you are looking at opportunities like that or these kind of two year terms that youre targeting to make the move from the U S, Canada or how are you thinking about that.
Speaker 2: transcript
Speaker 2: Luke, that's a great question. It's a real important strategy question for us as we think about it. And, you know, some of these opportunities might not be for full-year work. It might be for the winter or maybe for the summer. So we'll look at that very carefully and determine what we think is best. What we'd look for though, number one is that the operator needs to be paying a leading edge work at rate. We've in the past talked about that being around 37,000 dollars per day.
Look that's a great question is real important strategy question for us as we think about it.
Some of these opportunities might not be for full year work might be for the winter or maybe for the summer. So we will we will look at that very carefully and determine what we think is best what we'd look for though.
Number one is that the operator needs to pay a leading edge market rate.
<unk> talked about that being around 37000 Boes per day.
Speaker 2: transcript
Speaker 2: We've talked about the opportunity, needing to pay the full mobilization cost. You can think about that being around a million dollars to move the rig up and get it ready to work in Canada. So there's a lot of requirements we'll have on our customers if that rig's going to move up. But we also know it would be a situation where we oversupply the market.
We've talked about the operator.
Needing to pay the full mobilization costs when you could think about that being around $1 billion to move the rig up and get it ready to work in Canada. So theres a lot of.
Requirements will have on our customers of that rig is going to move up.
But we're also going to be a situation, where we oversupplied the market.
Speaker 2: transcript
Speaker 2: So we'll think very carefully to make sure that we think it's a stable work and that there's a long horizon of work for that rig. So we want to contract it was one to two years in duration, but we want to have good visibility and work beyond that. Now what I'd say is that with the LNG project coming on right now in Canada, we are expecting additional rig demand to meet the requirements of that project. And that's why we're targeting kind of something like one or two rigs.
So we will be very carefully to make sure that we think it's sustainable work.
Theres, a long horizon of work for that rig so we'd want to contract. It was one to two years in duration, but we'd want to have good visibility of work beyond that.
Now what I'd say is that with the LNG project coming on right now in Canada.
We are expecting additional rig demand to meet the requirements of that project.
That's why we're targeting kind of something like one or two rigs we think.
Speaker 2: transcript
Speaker 2: The market can probably handle and perhaps we're like maybe it can handle a third or fourth for our end bring the vaccines. Prior to your past evil was accepted.
The market can probably handle and perhaps where like maybe you can handle the third or fourth rig will.
One by one.
Speaker 8: transcript
Speaker 8: Okay, and then just still in Canada, I believe CWCS nonutilized regs, what's the outlook on those points?
Okay, and then just still on Canada, Blake CWC us non utilized rigs, what's the outlook on those going back to work.
Speaker 2: transcript
Speaker 2: So their fleet is primarily what are classified as Telly double rigs. Those are generally shallower rigs that are triples and maybe a little deeper than some of our super singles.
So their fleet is primarily what are classified as tele double rigs those are generally shallower rigs that are triples, and maybe a little deeper than some of our Super singles. The currently used in central Southern Alberta, and Saskatchewan scenario that precision hasnt.
Unknown Attendee: Good day and thank you for standing by. Welcome to the PRECISION DRILLING Corp. 2023-3rd quarter conference call.
Speaker 2: transcript
Speaker 2: commonly used in central southern Alberta and Saskatchewan.
Lavonne Zdunich: I want to like to hand the conference over to Lavonne Zdunich, Director of Restorrelations. Please go ahead.
Speaker 2: transcript
Speaker 2: It's an area that Precision hasn't had a lot of focus in the past. We've been really focused on the resource plays, the conventional heavy oil, and the moderate.
We have a lot of focus in the past we've been really focused on the resource plays the conventional heavy oil and the montney.
Lavonne Zdunich: Welcome to PRECISION's 3rd quarter earnings conference call and webcast.
Lavonne Zdunich: Participating on today's call with me will be Kevin Neveu, President and CEO, and Carey Ford RCFO. Earlier this morning, PRECISION reported strong 3rd quarter results, which Carey will review with you, followed by an opera operational update and outlet commentary from Kevin. Once we have finished our prepared comments, we will open the call to questions.
Speaker 2: transcript
Speaker 2: But we'll certainly bring the CBC team on, we're anxious to see how they've worked. They've been very effective in the winter season. They've had often all of those rigs running through the winter, all six rigs running quite commonly.
But we'll certainly bring the CIBC team on rates just to see how.
How big work they've been very effective in the winter season, they've had often all of those rigs running through to what Theyre, all six rigs running quite commonly.
Speaker 2: transcript
Speaker 2: So, you know, to see us running all 60 WC rigs and maybe pulling through a few more of the precision teledevils would be a very good outcome. And we think that the sales team from CWC can bring some strong market intelligence on that market segment for us.
So.
You'll see us running all six TWC rigs and maybe pulling through a few more of the precision tele doubles would be a very good outcome and we think that the sales team from CWC can bring us some.
Carey Ford: Some of our comments today will refer to non-IFRS financial measures and will include forward-looking statements, which are subject to a number of risks and uncertainties. Please see our news release and other regulatory filings for more information on financial measures, forward-looking statements and risk factors. As a reminder, we express our financial resolve. [inaudible] So, leading our expectations for just leave a doubt is a further strengthen in our balance sheet. During the quarter of just leave a doubt, $115 million was driven by healthy drilling activity, improved pricing, and strict cost control, and included a share-based competition charge of $31 million.
Strong market intelligence on that market segment for us.
Speaker 8: transcript
Speaker 8: Okay, if I could speak one word real quick on the US side that you said you have 44 rates operating and some could be reactivated later this year. You know, we've seen momentum, you know, the embarrass count last few weeks, especially on the Permian just on a daily basis. Where do you think kind of your account could be maybe, you know, 6 months from now or 3 to 6 months in the US just kind of based on conversations you're having and what you're saying.
Okay, if I could sneak one more in real quick on the U S side that you said you have 44 rigs operating and some could be reactivated later this year, we have seen momentum embarrassed count last few weeks, especially on the Permian just from a daily basis.
Where do you think kind of your rig count could be maybe six months from now or three to six months in the U S. Just kind of based on conversations you are having and what youre, saying.
Speaker 2: transcript
Speaker 2: Yeah, I think we'll be at a fresh budget year come January and certainly we've already got customer educations, there'll be more rates going to work. We're playing that against a couple of these large acquisitions that have announced recently between Exxon and Chevron. Everyone knows that three plus two equals four not five, so it's going to be a slight great count reduction with those transactions.
Yes, I think will be the first budget year from January and certainly we've already got.
Customer indications there'll be more rigs going to work you were putting up against.
A couple of these large acquisitions that have been announced recently between Exxon and Chevron.
Everyone knows that.
Three plus two equals four not five so there's going to be a slight rig count reduction with those transactions.
Speaker 2: transcript
Speaker 2: But other ENPs right now, they're looking to replace ducks and kind of get back into ensuring they can sustain production. It does feel like rig counts are moving up next year. Whether that's 50 or 75 rigs is a bit hard to project. But if we picked up our share of that and what we see in our pipeline right now, adding the eight rigs that are operating right now with CWC, we could have a rig count back in the low 60s pretty quickly.
But other e&ps right now they are looking to replace trucks and can we get back into.
Ensuring they can sustain production.
It does feel like rig counts are moving up next year.
Whether thats 50, or 75 rigs is a bit hard to project, but if we picked up our share of that and what we see.
In our pipeline right now.
Adding the <unk>.
The eight rigs that are operating right now at CWC, we're going to have a rig count back in the low sixty's pretty quickly.
Okay.
Perfect. Thanks, Kevin.
Speaker 7: transcript
Speaker 7: Great, thank you. Our next question comes from Kurt Heli with benchmark. Your light is up.
Thank you.
Our next question comes from Kurt <unk> with benchmark.
Your line is open.
Yes.
Carey Ford: Without this charge, a just leave a doubt would have been $146 million, which compares to normalized leave a doubt, $126 million, and Q3 2022, and increased 60 percent. Margins in Canada were higher than guidance, resulting from stronger than expected pricing and cost recovery, higher antillary revenues, and improved cost performance. In the US, margins were lower than guidance, largely due to an increase in operating costs driven by increased repair and maintenance costs and lower fixed cost absorption, as we're maintaining higher overhead and anticipation of increased activity in the first part of 2024.
Hey, good afternoon.
Speaker 9: transcript
Speaker 9: Hey Kevin, I know you guys reference here on the press release and your commentary, you know, about a potential doubling of profitability in the international market.
Kurt.
Yes.
Hey, Kevin I know you guys referenced here on the on your press release and your commentary about a potential doubling of profitability in the international market.
Speaker 9: transcript
Speaker 9: Is that, you know, it looks like you're adding what, one plus rig, you know, one and a half two rigs on average, you know, going into next year. So, something seemed like it's going to be all volume different per se. So, is there a significant step up in kind of day rate and catch margin you expect from these rigs that you're going to be bringing online?
Is that.
It looks like you are adding one one plus rig 152 rigs on average going into into next year. So it doesn't seem like it's going to be all volume driven per se. So is there a significant step up in <unk>.
Kind of day rate and cash margin you expect from these rigs that you are going to be bringing online.
Speaker 4: transcript
Speaker 4: So, of course, there's a couple of things there. We're gonna average a little bit less than six rigs this year. And the next year we'll average eight for the full year. The two rates that we're adding are higher margin than the other rates that are running on average. And we also incurred a bit of cost reactivating these last two rates that we'll work on next year. So, mixing all of that together, we think that an increase in 50%. Now, that's a 50% increase. It's not a doubling.
Carey Ford: In the US drilling activity for precision, average 41 rigs, and Q3, a decrease in 10 rates from Q2. Daily operating margins at Q3, excluding the impact of turnkey and IBC, were $11,941, a decrease of $1,563 US dollars from Q2. For Q4, we expect margins, excluding the impact of turnkey and IBC, to be in line with Q3 margins, in the $11,500 US dollars to $12,000 US dollar range. In Canada, Drillian Active Deepa Precision averaged 57 rigs, a slight decrease in 2 rigs from Q3 2022.
So correct. There's a couple of things there, we're going to average a little bit less than six rigs. This year and then next year will average eight for the full year. The two rigs we are adding a higher margin than the other rigs that are that are running.
On average.
And we also incurred a bit of cost reactivating. These last few rigs that won't recur next year. So mix can all of that together, we think that an increase in 50% now that's a 50% increase it's not a doubling.
Speaker 4: transcript
Speaker 4: And even it's just a 50% increase going from six to eight with a bit more profitability.
<unk>.
And EBITDA.
Just a 50% increase from six to eight with a bit more profitability.
Speaker 9: transcript
Speaker 9: Okay, that's great. Appreciate that clarity and then. Kind of follow up for you as you reference the increased term contract dynamics happening in in Canada and 27 rigs now on on term contract. Um, you know,
Okay. That's great I appreciate that clarity and then Kevin kind of follow up for you as you reference the increased term contract dynamics happening.
Carey Ford: Daniel operating margins in the quarter were $13,913, an increase of $1,830 from Q2 2023. For Q4, our Daniel operating margins are expected to average over $15,000, an increase of over $1,000 from Q3 levels due in salary, which are equipment and improving pricing. We continue to build our North American contract book with Q4 2023, Drillian rigs of 57 under take-or-pay term contracts on average for the fourth quarter of 2023. In addition, we recently signed several term contracts for work to maintain early in 2024.
And in Canada.
27 rigs now on on term contract.
Hi.
Speaker 9: transcript
Speaker 9: Crystal Ballot, you know, in the next one to two years, given the dynamics around, you know, LNG and heavy oil, as you referenced, what do you think that 27 could become?
Crystal ball it and the next one to two years given the dynamics around.
LNG and heavy oil as you referenced.
What do you think that 27 could become.
Speaker 2: transcript
Speaker 2: You know, I have to preface everything with macro. The macro could affect everywhere all the time. But assuming the macro doesn't have some massive shift like a pandemic or another war, but we're dealing with the Canadian market as it is today with the Trans Mountain Pipeline coming on and the Coastal Gas Link project and then likely follow on approval of phase two for LNG Canada.
I'll have to purpose everything with macro the macro could affect everywhere all the time, but assuming the macro doesn't have some massive shift like a pandemic or another war, but we're dealing with.
The Canadian market as it sits today with <unk>.
<unk> mountain pipeline coming on.
Carey Ford: Internationally, Drillian Active Deepa Precision in the quarter, averaged 6 rigs. Internationally, averaged 8 for 51,570 US dollars, an increase of 3% from the prior year due to rig next. We recently activated our fourth rig in Kuwait and expected fifth rig to be activated in the next few weeks. We expect earnings and our international business to increase approximately 50% from 2023 to 2024. Moving to our CNP segment, adjusted the $1,414 million down slightly compared to the prior year quarter with 10% fuel wealth servicing hours offset by higher pricing and market.
The coastal gasoline project and then likely.
Follow on approval of phase II for LNG, Canada.
Speaker 2: transcript
Speaker 2: So if we're running 30 rigs today, that could be as much as mid 30s, three or four years down the road. Could even be a low 30s just by the end of next year. So we could see that recount go from 30 to 32 or 33.
So if we're running 30 rigs today that could be as much as mid thirties, three years or four years down the road could even be at a low <unk> just by that of next year. So we could see that rig count go from 30% to 32 or 33 next.
Speaker 2: transcript
Speaker 2: next year and you know up on that could be 35 or could be 40 weeks kind of down the road. I don't think we're building new ricks. I think we've got opportunities to upgrade existing ricks like we did for the one rigger moving into Canada on January the first. You know to give you a sense of the capital needs for that we could probably upgrade one of our older SER rigs to a full super-stack for the range of 10 to 15 million dollars far less expensive than building a new winterized rig. So I don't
Next year.
Beyond that could be 35 or it could be 40 rigs go down the road I don't think were building new rigs I think we've got opportunities to upgrade existing rigs like we did for the one rig or moving to Canada on January the first.
To give you a sense of the capital needs for that we could probably upgrade.
One of our older SCR rigs to a full super spec for the range of $10 million to $15 million far less expensive than.
Carey Ford: Moving to the balance sheet, we are committed to reducing debt by over $500 million between 2022 and 2025 and achieving a normalized leverage level up below one time. Our debt reduction target for 2023 is $150 million and we plan to allocate 10 to 20% of free cash flow before principal payments directly to shareholders. During the quarter, we reduced debt by $26 million and have now reduced debt by $126 million a year to date.
Building, a new winterized rig so I don't think.
Speaker 2: transcript
Speaker 2: We would need a ton of capital just here in Canada to go up.
We would need a ton of capital does your rig count in Canada to go up.
Speaker 2: transcript
Speaker 2: Quite a bit if the LNG projects continue as they look and have your welcome to
Quite a bit if the LNG projects continue as they look at.
Sure.
In heavy oil continues to remain strong.
Speaker 9: transcript
Speaker 9: It's great. Really appreciate the color. Thank you. Thank you.
That's great really appreciate the color. Thank you.
Speaker 7: transcript
Speaker 7: Our next question comes from Keith McKee with RBC Capital Markets. Your line is open.
Thank you.
Our next question comes from Keith <unk> with RBC capital markets. Your line is open.
Carey Ford: Upon closing the CWC acquisition, we will assume CWC debt made cash payments to CWC shareholders in a current transaction cost all totaling in the $60 million to $70 million range. Despite incurring these cash costs, we still expect to meet our annual debt reduction target at $159, pointing to robust cash flow expectations in the fourth quarter. As of September 30, our long-term debt position net of cash with approximately $950 million and our total liquidity position was $621 million excluding letters of credit.
Speaker 10: transcript
Speaker 10: Hi, good afternoon. First question is just on the US. Now, Kevin, we know that your rig count over the last year or so had been more private company weighted, and you talked about adding six public companies this year and increasing your share with two. Just curious, what do you think is the right customer mix for PD in the US in terms of public, private, etc? And what do you think needs to happen in order for you to get there?
Hi, Good afternoon. First question is just on the U S. Now, Kevin we know that your rig count.
Over the last year or so had been more private company weighted and you talked about adding six public companies this year and increasing your share with too.
Just curious what do you think is the right customer mix for PD in the U S. In terms of publics privates et cetera, and what do you think needs to happen in order for you to get there.
Speaker 2: transcript
Speaker 2: Yeah, Keith, I think that that sort of changes with time a little bit. I do think that as US LNG exports start to ramp up in 2024 and 2025, we might be a little less worried about, you know, private equity style E&P companies that they're drilling for gas.
Keith I think that that sort of changes with time, a little bit I do think that as U S. LNG.
Carey Ford: Our net debt to trailing 12-month EBITDA ratio is approximately 1.7 times and our average cost of debt is approximately 7%. We expect our net debt to adjust EBITDA ratio to be below 1.5 times by year end with net debt of approximately $909 and our run rate interest expense from approximately $65 million. Our full year 2023 capital plan has increased from $195 million to $215 million, largely resulting in signing term contracts with upgrade capital paid back inside of the term of the contract.
Exports start to ramp up.
<unk> 24 in 2025.
We might be a little less.
Read about.
<unk>.
Private equity style E&P companies that they are drilling for gas.
Speaker 2: transcript
Speaker 2: if there's a stronger energy export market. So if I look back at FY 2020, FY 2021, having that private company exposure, gas exposure, was excellent for people.
If theres a stronger LNG export market.
I look back at.
FY 'twenty 'twenty FY 2021, having that private company exposure dose exposure was excellent for precision.
Speaker 2: transcript
Speaker 2: Now, at this point in time today, having more public company exposure, having exposure to the major supermage, having more oil exposures, what we're targeting, and we're delivering on that. It's not, you know, we can't make these changes and a week or two it takes a quarter, two quarters, three quarters, but our customer mix at the end of this year will look vastly different than it did at the beginning of the year. And I'm really pleased the progress our sales team is making on it.
At this point in time today, having more public company exposure, having exposure to the major super majors, having more oil exposures, what we're targeting and we're delivering on that it's not we can't make these changes in a week or two it takes a quarter two quarters three quarters, but our customer mix at the end of this year will look vastly different than it did at the beginning of the year and I'm really pleased with the progress our sales team is making on that.
Carey Ford: For several of these contracts, we received cash upfront from the customer. Additional annual guidance for 2023, which does not consider impacts from the CWC acquisition, includes appreciation at $290 million and SGNA at $90 million before share-based compensation expense. We expect cash interest expense to be approximately $80 million for the year and cash taxes to remain low with an effective tax rate of approximately 25%. Here today we have had share-based compensation charges of $22 million.
Yes.
Speaker 10: transcript
Speaker 10: got to appreciate the color and and maybe one for carry uh... what you see in terms of uh... maintenance capEx per rig or maintenance capEx per day uh... i guess more specifically on on your u.s. fleet has there been much inflation from that fifty hundred a day level what we used always quote door or where things trending there
Yes got it appreciate the color and maybe one for Kerry.
What are you seeing in terms of maintenance capex per rig or maintenance Capex per day, I guess more specifically on your U S. Fleet has there been much inflation from that 500, a day level that we used to always quote or where things trending there.
Carey Ford: As previously stated, we expect our 2023 share-based compensation expense to range between $20 million and $40 million for the share price range of $60 to $100, with the potential to increase or decrease of the $15 million based on relative share price performance and a multiple between zero and two times.
Speaker 4: transcript
Speaker 4: Yes. So there has been inflation. We've quoted on on prior conference calls that.
Yes so.
There has been inflation, we had quoted on prior conference calls.
Speaker 4: transcript
Speaker 4: Managed capital cost per day was trending closer to 2000. Now it's closer to the mid-2000s. But I would point out that that includes drill pipe replacement. And in a lot of cases, we are getting customers to pay for excess wear on drill pipes.
With the many capital cost per day was trending closer to 2000.
Now it's closer to the mid two thousands, but I would point out that that includes drill pipe replacement and then a lot of cases, we are getting customers to pay for access where on drill pipe.
Kevin Neveu: With that, I will now turn the call over to Kevin. Thank you, Kerry, and good afternoon. I'm pleased with the third quarter results, with improved revenue and cash flow compared to the same period last year, despite lower industry activity and under American markets.
Speaker 4: transcript
And so we're it's showing up as a higher cost.
And maintenance Capex, but then we're recouping in the margin.
Speaker 10: transcript
Speaker 10: Got it. Okay. So drill pipe and some other things. What are what are besides the drill pipe? What would have been kind of the big the big drivers in terms of the maintenance capital number increase?
Got it okay, so drill pipe and some other things what are what are besides the drill pipe what have been kind of the big the big drivers in terms of the maintenance capital number increasing so it would be mud pumps mud pump maintenance.
Kevin Neveu: I commend everyone in precision's organization for the precise execution and safety, excellent operational performance, strict financial discipline, and they continue to focus on cash management which was demonstrated across all precision business segments during the quarter. I continue to be very encouraged by the support of commodity price fundamentals, but also by the strict capital discipline evident across this industry. This discipline begins with the investor's expectations for shoulder returns and it continues assistance for industry capital discipline.
Speaker 4: transcript
Speaker 4: So, it would be mud pumps, mud pump maintenance, engines, top drive, all the critical components on the rig. The repair costs have gone up. If you think about R&M, you've got
<unk> top drive all the critical components on the rig.
Repair costs have gone up if you think about R&M you've got.
Speaker 4: transcript
Speaker 4: that consumable components, when you do repairs, which have a little bit of inflation in them, and then you have labor. And so labor's up across the board, and that's what's driving.
Consumable components when you do repairs.
Which have a little bit of inflation and then and then you have labor.
Flavors up across the board and Thats whats driving it.
Kevin Neveu: Our customers are functioning very well this environment. They are not responding to short-term commodity price signals or volatility. They are managing budgets and staying well within cash flow, and most importantly, they are focusing on efficiency and performance. I know where is this more important than our Canadian segment, where broad industry activity is down 6% during the third quarter compared to last year as our customers remain highly disciplined staying within fixed budgets.
Speaker 10: transcript
Speaker 10: and and just let one last one on any on any activations that you might see in the u.s. is there are we talking about any substantial capital requirements to bring any of those rigs back where they are pretty warm still
Yeah got it and just one last one on any on any activations that you might see in the US Is there are we talking about any substantial capital requirements to bring to bring in any of those rigs back or are they all pretty pretty warm still.
Speaker 4: transcript
Speaker 4: Like they not much maintenance capital, we might have a little bit of operating expense, and if there's upgrades associated with the reacquation, there'd be some upgrade capital.
Likely not.
Not much maintenance capital, we might have a little bit of operating expense and if theres upgrades associated with the reactivation there'd be some upgrade cabinet.
Kevin Neveu: Yes, our 29 super triple rigs are fully utilized this year compared to 25 at the same time last year. I remind you we'll be adding one more super triple to our fleet on January 1 through an upgrade we announced late last year. Today, we're also running 32 super singles, and this would be the highest Q3 utilization for this request since early last decade. In light of the high super spec rig demand, we have customers anxious to commit to firm, takeer pay, term contracts, securing rig access.
Speaker 4: transcript
Speaker 4: But you make the correct point that a lot of these rigs were working six months or a year ago, and they're not going to be the same type of pre-activations that we had to put forward at the end of 21, beginning of 22.
But but you make you.
When you make the correct point that a lot of these rigs were working six months or a year ago and theyre not going to be the same type of pre activations that we had to put forward at the end of 'twenty, one beginning of 'twenty two.
Okay. Thanks very much.
Speaker 7: transcript
Speaker 7: Our next question comes from Karl Pereira, who's deep ill, your line is open.
Our next question comes from <unk> <unk> with Stifel. Your line is open.
Speaker 11: transcript
Speaker 11: afternoon all I just want to start on the margin front of the US So it sounds like some of the costs there we're gonna re-occur in Q4 You know, is there anything transitory that is in both Q3 and Q4 or you know in the event that the that the rig count in the US doesn't Increase is that kind of a reasonable run rate Going forward just as From your last call I mean your rig count in the US is down a little bit, but the margin outlook is quite a bit lower
Afternoon, all I just wanted to start on the margin front in the U S.
So it sounds like some of the costs there.
Kevin Neveu: Currently, our Canadian book includes 27 rigs under term contracts, and 17 of those have two year plus terms. I remind you that the Canadian market term takeer pay contracts are traditionally exceedingly rare. Notably, we recently booked several customer contracts, which include padwalking and depth extending upgrades. And those rigs are required for the winter 2024 drilling season, and this necessitated increasing our current year capital budget as Kerry described earlier. I'll also reiterate Kerry's comments that the capital will pay back within the contract period, and the enhanced margins will continue for the duration of the rigs operation of life. Also for several of these contracts, customers provided us with advanced cash payments upfront as we were required to minimize our cash inflows. Our outlook for Canada remains uniquely strong.
Going to reoccur in Q4 was there anything transitory that is in both Q3 and Q4 or in the event that the rig count in the U S doesn't increase as that kind of a reasonable run rate.
Going forward just as.
From your last call I mean, your rig count in the U S is down a little bit, but the margin outlook is quite a bit lower.
Speaker 4: transcript
Speaker 4: Right. So I think that the cost will trend down a bit more in Q1, regardless of whether we increase our recount.
Right. So so I think that they will the cost will trend down a bit more in Q1, regardless of whether we increase our rig count.
Speaker 4: transcript
Speaker 4: If you think about it, if you have a lower rigout, you're absorbing a bit more face cost, but also if you have a high maintenance cost on a rig, if you have a productive fund that needs to be replaced, it just shows up more.
There if you think about if you have a lower rig count you're absorbing a bit more fixed cost, but also have you have a.
Our high maintenance costs on a rig if you have.
Critical component that needs to be replaced.
It just shows up.
More.
It's it's more prevalent than the average.
Speaker 4: transcript
Speaker 4: operating cost if you're running pure rigs. So we've had a few of those, which had a higher iron and cost on a particular rig, and it just shows up a little bit more in the...
Operating cost if youre running fewer rigs and so we've had a few of those where we just had higher higher R&M costs on a particular rig and it it just shows up a little bit.
Kevin Neveu: Early in 2024, two major hydrocarbon pipe projects will be started up. The Coastal GasLink typeset to deliver natural gas to the LNG Canada Project and Trans Mountain expansion, adding almost 700,000 barrels per day of oil export capacity. For Canada, these projects are absolute game-changers resulting in significantly approved upstream commodity prices for our customers, deep bottle-necking production and providing global market access for Canadian energy. Now, I see these independent projects as a problem in each other, and that is to say that the liquid condensate produced by the Monteney gas wells is sold commercially as billiant to the heavy oil producers to enable heavy oil shipping to pipelines, so this significantly improves the economics of the Monteney gas producers who are ultimately focused on the LNG exports of the longer term.
Kevin Neveu: And currently, the increased oil export capacity of TMX will serve to reduce the Western Canada Select price discount significantly improving economics for heavy oil customers. So, for precision, the result is that the natural gas drilling in the Monteney is growing to meet the imminent needs of LNG Canada, and heavy oil drilling has rebounded to level, done experience since 2014. And all of this is evidenced in our records to protriple demand and our strong super-single demand.
A little bit more on the in the daily operating cost because of it.
Speaker 4: transcript
Speaker 4: So we do think that there's a bit of trans-dory costs in there and we should see that turning down a bit more if you want.
So we do think that there is a bit of transitory costs in there and what we should see that trending down a bit more in Q1.
Speaker 11: transcript
Speaker 11: Okay, got it. And then coming back to a shareholder returns, you talked about it a little bit. And there's obviously a few different ways that activity can go next year, but free cash flow should be pretty strong in any reasonable scenario. I mean, from your standpoint is that, you know, you maybe think about paying down and call it $150 million if dad or something in that range and should have a lot left over and then you think about growth, capex and kind of put the rest in the buyback.
Okay got it and then coming back to shareholder returns you talked about it a little bit and there's obviously a few different ways activity can go next year, but.
Free cash flow should be pretty strong in any reasonable scenario.
From your standpoint is it you maybe think about paying down call it $150 million of debt or something in that range and should have a lot left over and then you think about growth capex and kind of put the put the rest in the buyback.
Speaker 4: transcript
Speaker 4: Yes, so we'll put forward our capital allocation target to the beginning of next year. I think in general, you're thinking about it right, correctly, Colt. We will continue our debt reduction.
Yes, so we'll put forward our capital allocation targets at the beginning of next year I think in general Youre thinking about it right correctly.
We will continue our debt reduction.
Speaker 4: transcript
Speaker 4: schedule, we will have capital all I can to work share by back. And then I would look at our growth capital this the same way that we would always look at it. We're going to look for opportunities to spend a great capital match the contracts where we get that capital tied back into the extent that there's opportunities in that in the market.
Schedule, we will have capital allocated towards share buybacks and then I would look at our growth capital. This the same way that we've always looked at it we're going to look for opportunities to spend a great capital match, the contracts, where we get that capital paid back in to the extent that there is opportunity to do that in the market we will pursue it.
Kevin Neveu: So, this is truly a game-changer for precision, Canadian drilling market. With term contracts providing revenue stability, reduced seasonality with pad rigs drilling throughout breakup, market visibility extending beyond seasonal commodity price volatility, and all of these factors setting us up to deliver sustainable shoulder returns commensurate with our asset base, and providing opportunities for further expansion in our daily footprint. Today, we have 68 rigs running, actually up one from our crystal waste, which was reporting yesterday's activity, and expect to be in the low 70s before the crystal's pause.
Speaker 11: transcript
Speaker 11: Got it, thanks. And you've done a few of these bulletons now. How do you think about further consolidation just as part of the overall PD strategy?
Got it thanks, and you've done a few of these bolt ons now how do you think about further consolidation just as part of the overall PD strategy.
Speaker 2: transcript
Speaker 2: You know, I think we've demonstrated over the past couple of years that if we can be opportunistic, we will. But really clearly it's not one of our top three strategic priorities. So I don't think we're going to pivot and all of a sudden become highly acquisitionally focused. We like the stability of the strong balance sheet, but
I think.
We have demonstrated over the past couple of years that.
We can be opportunistic we will but really clearly it's not one of our top three strategic priorities. So I don't think were to pivot and all of a sudden become highly.
Acquisition, we focused we like.
The stability of the strong balance sheet, but.
Kevin Neveu: Customer planning for winter suggests a strong and fast start to 2024, with customer demand exceeding 23 levels. And we look forward to the addition of the CWC drilling rigs and crews, and we expect that precision combined activity this winter could be up 10 to 15 percent from last year. Leading edge day rates for our super triples are now in the mid-30s, and for our conventional super-singles in the mid-20s, while our pad equipped super-singles have now moved up into the low 30s, thousands per day range.
Jerry good at Endesa.
Speaker 4: transcript
Speaker 4: Sure, it's important to note that when we executed the high Arctic acquisition...
Sure.
It's important to note that when we.
Executed the high Arctic acquisition, we were able to remain committed to our debt reduction target for 2021, and 2022 and if you look at what we're what we've communicated in this conference call that we're going to complete the CWC acquisition and still <unk>.
Speaker 4: transcript
Speaker 4: We were able to remain committed to our debt reduction target for 2021 and 2022. And if you look at what we're what we've communicated on this conference call that we're going to complete the CWC acquisition. And still meet our debt reduction targets for this year, it shows you where our priorities are. To get the balance sheet in order and.
Our debt reduction targets for this year. It shows you where our priorities are to get the balance sheet in order in.
Speaker 4: transcript
Speaker 4: We're in a favorable place right now where we've got some flexibility where we can do some of these tucking acquisition.
Kevin Neveu: In particular, excess customer demand for precision's health equipped super-trip full rigs, the seemingly in the range of seven to ten additional rig opportunities we're considering. I think the likelihood that we secure a customer paid redeployment of at least one or two super-travels in the U.S, to Canada later next year is increasing. With our super-singles, the demand tends to be more seasonal, with what's it being the peak season, where demand could upstrip our rig availability by ten or more rigs.
We're in a favorable place right now where we've got some flexibility where we can do some nice tuck.
<unk> acquisition.
Speaker 4: transcript
Speaker 4: But that reduction is still going to be the number one on the moon folks of the company for the next year.
Debt reduction is still going to be the number one number one focus of the company for the next year or two.
Speaker 11: transcript
Speaker 11: Got it. Okay, that's all from me. Thanks. I'll turn it back. It's pretty cool.
Got it Okay. That's all for me, Thanks, I'll turn it back.
Thank you Paul.
Speaker 7: transcript
Speaker 7: Our next question comes from Makar Said with ATV Capital Markets, your line is up.
Our next question comes from Waqar Syed with <unk> capital markets. Your line is open.
Speaker 12: transcript
Speaker 12: Do you expect shortfall revenues in Q4?
Thank you.
Do you expect a shortfall revenues in Q4.
Kevin Neveu: So we expect these market demand signals may lead to additional opportunities for customer funded upgrades or pad drilling, and longer reach horizontal capabilities, and certainly stimulate further customer interest in take-or-pay term contracts so they can secure access to the rigs.
Speaker 4: transcript
Speaker 4: Yes, they'll be similar to what we reported in Q3 in that kind of $6 million range.
Yes, there will be similar to what we.
What we reported in Q3 and that kind of $6 million range.
Speaker 12: transcript
Speaker 12: And when to the fall of it's Q4 going to be the last quarter for those or do you expect them next year as well?
U S.
Okay.
Falloff is Q4 going to be the last quarter for those do you expect them next year as well.
Kevin Neveu: Now, turning to the lower 48, the capital discipline I've described in Canada is out of work in every U.S, basin. In the near-term, it's meant that natural gas drilling has slowed down over the course of 2023, and the increases in oil-targeted drilling we expected earlier this year failed to materialize, as our customers continue to pay the amount that they're drilling budget. However, we continue to see customers optimizing drilling efficiency by hydrating rigs, focusing on pad drilling and extending lateral lengths.
Speaker 4: transcript
Speaker 4: If we might have a little bit at the beginning of next year, but the bulk of this level of IBC revenue will fall off and keep working.
We might have a little bit at the beginning of next year, but the bulk of this this level of IPC revenue will fall off.
In Q4.
Patrick before okay.
Speaker 12: transcript
Speaker 12: Okay, and then, you know, as the CWC rigs get on the payroll in next...
Okay.
Then.
As the CW see rigs get on the.
On the payroll.
Next year in the U S.
Speaker 12: transcript
Speaker 12: How would those impact your daily operating costs and daily regret?
How would those impact your daily operating costs and daily.
Kevin Neveu: This focus on efficiency is also continuing to draw customer interest in our alpha automation platform, our alpha apps, and it's driving interest in our evergreen best battery energy storage systems and other diesel fuel saving solutions. Today, we have 44 rigs operating in the US and seem to be in the trop. We have customer indications and interest indicate an increase in activity as budgets reload for 2024 and we expect to see some of these rigs activated later this year.
Great.
Speaker 4: transcript
Speaker 4: I think it's a little bit too early to talk about how that's going to impact our daily operating margins and rates. We're planning to close the acquisition here in the next couple of weeks, and we'll be able to talk about that a bit more.
I think it's a little bit too early to talk about how that's going to impact our daily operating margins in rate.
We're planning to close the acquisition here in the next couple of weeks and we'll be able to talk about that a bit more clearly.
Speaker 12: transcript
Speaker 12: Okay, so let's assume then without CWC.
Okay. So.
Thats the zoom than without CWC.
Speaker 12: transcript
Speaker 12: on your own fleet. When do you expect US margins to bottom?
On your own fleet.
When do you expect U S margins to bottom.
Kevin Neveu: During the third quarter, we continued to experience strong customer interest that our alpha put super triple rigs. Since the beginning of the year, we've added five public EMPs to our customer list and increased our share with two others as we transition to more oil based work in less private company exposure. Now, super spec rig supply remains in tight availability. During the third quarter, we secured a paid upgrade amendments from a customer to cover the cost of increasing the horizontal depth capability of precision super triple.
Speaker 4: transcript
Speaker 4: Well, they're, they're, they could be bottoming right now. We're not seeing much of a much of a change through Q3, Q4. It just depends on whether the recount.
Whether they are there could be bought I mean, right now we're not seeing much of a much of a change from Q3 Q4 just depends on weather.
Rig count.
Continues to trend up in Q1.
Speaker 2: transcript
Speaker 2: I might answer that. I focused on what you model for rig count next year, but if you're modeling rig count and move up in Q1, then I think that margins are bottom.
Okay.
Yes.
<unk>.
Kind of focused on what your model for rig count next year, but if you're modeling the rig count to move up in Q1.
Kevin Neveu: And during the year, we've executed 12 other similar upgrades and these upgrades include enhancements to the month coming capability, the drill pipe rocking capacity and targeting longer reach horizontal wells. And some of these also include evergreen enhancements to improve the fuel efficiency of the rig. We expect to see more of these customer paid up paid upgrades emerging in 2024. Rig pricing and leading as rates remain stable as the most capable high specification rigs remain a tight supply and pricing discipline remains of course through energy across the super spec landmark industry.
That I think that rates above that margins have bottomed.
Speaker 12: transcript
Speaker 12: That's good to hear and then Kevin You know you touched upon these big mergers that are happening and then you know It was mentioned in one case that they they would be looking at these formal type Latholes and some other companies have talked about that those as well
Okay.
That's good to hear and then Kevin.
You touched upon these big mergers that are happening and then.
It was mentioned in one case that they would be looking at these.
For my type lateral is in some other companies have talked about those as well.
Speaker 12: transcript
Speaker 12: What type of rig would be required to drill that? I imagine not every super triple rig can do that. There may be, you know, even a further subset within super triple that would do that. So maybe, could you talk about like what exactly, what type of equipment would be required on a rig?
What type of rig would be required to rid of that I imagine not every super triple rig can do that there may be.
Even us.
Kevin Neveu: I'm very excited to add the eight CWC rigs and crews currently work operating in Wyoming and we see the powder river basin as an excellent opportunity for precision to expand our US operations in 2024. Now, turning towards our national business, as Terry mentioned, we activated our fourth rig in Kuwait during the third quarter and expect the fifth rig to start up early to mid November. What the rigs are activating several weeks later than we previously got it.
Further <unk>.
Subset within Super triples that would do that so maybe could you talk about like what exactly what type of equipment would be required on a rig.
Speaker 2: transcript
Speaker 2: Yeah, a little bit I can. So we've drilled some three mile ladders. We've actually drilled a couple of four mile ladders. They didn't shell replaced, not the deeper place. But anytime you extend the length of the well or the vertical depth of the well, either one, you're increasing the required hook load capacity for the rigs. You need to have the mask has to either be strong enough or be reinforced to be strong enough.
Yeah, a little bit I can.
So we've drilled some three mile laterals, we've actually drilled a couple of four mile laterals dividend shallower plays Dr deeper plays.
Kevin Neveu: And these delays were entirely due to client planning delays, not precision missions. The capital spending to reactivate those rigs with largely complete and the five year contract for each rig will commence when the rig begins operations. By mid November, we'll have all five rigs in Kuwait operating and three rigs in Kingdom of Saudi Arabia, Rivia running for total eight rigs. We'll continue to bid all five idle rigs opportunity across the Indian Gulf.
But anytime you extend the length of the well or the vertical depth of the well either one youre increasing the required hook load capacity for the rigs to need to have the mass has to either be strong enough for be reinforced to be strong enough you.
Speaker 2: transcript
Speaker 2: You're increasing the amount of pipe you need to build a rack in the mast. So you have to increase the rocking capacity of both the rocking board and the substructure to support that pipe.
We are increasing the amount of pipe you need to build a rack in the mask. So you have to increase the racking capacity of both the Rocky Award and the substructure to support that pipe.
Speaker 2: transcript
Speaker 2: And now you've got more pipe, more weights, or everything else to support that weight. And then because you're drilling farther and you're adding more pipe in the ground, you need more hydraulic horsepower. So typically going from two pumps to three pumps or going from 1,600 to 2,000 horsepower mud pumps. So most of these rigs that in our fleet,
And there'll be more pipe, it's more weight, so everything has to support that weight.
And then because youre drilling farther and youre, adding more pipe in the ground jabbour hydraulic horsepower.
Kevin Neveu: In our well servicing segment, Canadian industry, well servicing activity notice notice was slow during the third quarter as our customers digested the cost increases related to services inflation labor costs and material costs. We see a backlog of previously planned activity building up and now we can see a significant increase in activity and expect us to continue it's next year. I'm also very encouraged by the strong performance we see in the CWC well services group and look forward to integrating people of CWC and their operations into our business later this quarter.
Typically going from two pumps to three pumps or going from 602000 horsepower mud pumps.
So.
Most of these rigs in our fleet.
Speaker 2: transcript
Speaker 2: all of these changes for us are kind of bolt-ons. We can bolt on a mast upgrade, we can bolt on a rocking capacity upgrade, we can slide in a third pump, slide in a fourth generator. So the rig doesn't become obsolete, but these are capital increases. So to add a third pump and a fourth generator is over a million dollars. To upgrade the mast capacity to handle more pipe might be, in our case, might be less than a half million dollars.
All of these changes for us are kind of bolt ons, we can bolt on amassed upgrade we can bolt on.
Rocky and capacity upgrade we can slide in a third pump slide a fourth generator. So the rig doesn't become obsolete.
But these are capital increases so to add a third pump or the fourth generators over $1 million to us.
Great the mass capacity to have more have a more pipe might be drk's, let the last of the $5 million.
Kevin Neveu: So to wrap up my comments today, I'm thrilled that despite a weaker market than most would have expected precision's on track on all three strategic priorities. We also created the financial flexibility to execute a meaningful Canadian consolidation transaction and we continue to have the flexibility to invest in our fleet to be customer backed rig up great opportunities.
Speaker 2: transcript
Speaker 2: If you want to do all of these things together for one of our rigs, it's probably the range of any working 3 to 5 million.
If you want to do all of these things together for one of our rigs that's probably the range of anywhere from $3 million to $5 million.
Speaker 2: transcript
Speaker 2: And the other component is the top drive usually has to have a higher torque capacity. There's a bit of work to do in the top drive.
And.
The other component is a top drive usually has to have a higher torque capacity. So there's a bit of work to do on the top drive.
Speaker 9: transcript
Speaker 9: Thank you very much. That's how I have. Great. Thank you, Bucar.
Unknown Attendee: With that, I'll turn the call back to the operator for your questions. Thank you ladies and gentlemen If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered You wish to move yourself from the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster.
Alright.
Yes.
Thank you very much that's all I have great. Thank you waqar.
Speaker 7: transcript
Speaker 7: Our next question comes from Sean Mitchell with Daniel Engel Partners, your line is up.
Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open.
Speaker 13: transcript
Speaker 13: Thanks, guys, for taking my question here. You guys have got the three rigs in Saudi, the fourth and fifth rig in Kuwait. Any thoughts around exploring other international markets? I know Luke hit Canada and U.S., but we haven't really talked about, are there other opportunities international that you guys are looking at in any color you can add?
Thanks, guys for taking my question here.
Guys have got the three rigs in Saudi.
Fourth and fifth rig in Kuwait any thoughts around exploring other international markets and then look at Canada and U S. But we haven't really talked about are there other opportunities internationally that you guys are looking at and any color you can add.
Aaron MacNeil: Our first question comes from Aaron McNeil with TD Cow and your line is open. Good afternoon and thanks for taking my questions. Kevin, I can appreciate that there's a lot of value in keeping your promises on the debt reduction, especially in light of the track record over multiple years.
Speaker 2: transcript
Speaker 2: Sean, we've been clearly focused on maximizing our footprint in Calate and Saudi. So for sure those two countries.
Sean we've been clearly focused on maximizing our footprint in Kuwait and Saudi so for sure. Those two countries we've been bidding around the Gulf. We think we can support rigs in Qatar Bahrain maybe.
Speaker 2: transcript
Speaker 2: We've been bidding around the Gulf. We think we can support rigs in Qatar, Bahrain, maybe Abu Dhabi, places like that from the base of operations we have either in Saudi or Kuwait and our regional offices in Dubai. So we think the entire Gulf region is open to us. We're not looking really aggressively outside the Gulf. We have had inquiries from Argentina. We've had inquiries from Central Africa.
Carey Ford: But sort of putting that aside, how does debt reduction compete today for capital with the NCIB given the prevailing valuation and how should we think about that in the context of your strategic priorities for next year? Yeah, go ahead, Jerry. Aaron, so I'll take that one. You know, the debt reduction still remains front and center and we put out very specific targets for 2023 and then the two years following this year.
Maybe Abu Dhabi places like that from the base of operations, we have either in Saudi or Kuwait.
Our regional offices in Dubai, So we think the entire Gulf regions opened to us we're.
We're not looking really aggressively outside the Gulf, we have had inquiries from Argentina without inquiries from Central Africa.
Speaker 14: transcript
Speaker 14: I'm not anxious to see us, you know, in six or seven different countries around the world, but if we had a one-off chance to put a rig somewhere at a really good day rate, we'd look at that. Okay.
Im not anxious to see us.
Carey Ford: It's what committed to doing that. As we have more free cash flow, we should be able to expand the amount that we allocate towards cherry purchases. This year is 10 to 20% of our free cash flow, which would put it kind of in the $15 to $39 range of cherry purchases. Next year, if our cash flow outlook improves, we should be able to increase that.
In six or seven different countries around the world, but if we had a one off chance to put a rig somewhere in a really.
Really good day rate, we'd look at that.
Okay.
Thank you.
Okay. Thanks, Sean.
Speaker 7: transcript
Speaker 7: And I'm not showing any further questions at this time, I'd like to turn the call back over to Levon for any closing remarks.
Im not showing any further questions at this time I'd like to turn the call back over to <unk> for any closing remarks.
Speaker 3: transcript
Speaker 3: On behalf of the team here at Precision, I'd like to thank people for joining us today, and that concludes our conference call. Thank you.
On behalf of the team here at precision I'd like to thank people for joining us today and that concludes our conference call. Thank you.
Speaker 7: transcript
Speaker 7: Well, ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Carey Ford: I know you gave guidance for Q4 margins in the US and your prepared remarks, but I'm hoping you can sort of give us a better sense of the moving parts. I mean, you mentioned the higher staffing levels. You mentioned R&M. Like how much of that was, you know, I don't want to call it one time that maybe it's normal and what sort of recurring. Yes, so I think if you think about Q3 and Q4 top line, there won't be a whole lot of movement and in the cost that we incurred in Q3, a lot of those will repeat in Q4.
Speaker 5: transcript
Speaker 5: Music
[music].
Okay.
Okay.
Okay.
Carey Ford: So that goes into the margin guidance that we provided. As Kevin mentioned, our Q2 call, we were going to have the read count kind of moving up and down a little bit around this kind of low 40 level. And that means there's a bit more richer and then we typically have which causes a little bit more cost. And as I mentioned, we're carrying a bit more overhead than we typically with this activity level because we do think that activity is going to increase. But for your guidance, I would point to a similar operating cost in Q4 that we added. Okay, thanks.
Unknown Attendee: We'll turn it back next year.
Luke Lemoine: Our next question comes from Luke Lemoine with Piper Sandler. Your line is open. A good afternoon. Kevin, I believe you talked about 7 or 10 additional opportunities in Canada. And maybe you can move one to two US super triples in the Canada. When you're looking at opportunities like that, are these kind of two-year terms that you're targeting to make the move from the US to Canada? Or how are you thinking about that?
Kevin Neveu: Luke, that's a great question is real important strategy question for us as we think about it. And you know, some of these opportunities might not be for full-year work. It might be for the winter or maybe for the summer. So we'll look at that very carefully and determine what we think is best. What we look for though, number one is that the operator needs to be paying a leading edge market rate.
Kevin Neveu: We've talked about that being around 37,000 dollars per day. We've talked about the opportunity needing to pay the full mobilization costs and you can think about that being around a million dollars to move the rig up and get it ready to work in Canada. So there's a lot of requirements we'll have in our customers if that rig is going to move up. But we also want to be a situation where we oversupply the market.
Kevin Neveu: So we'll think very carefully to make sure that we think it's sustainable work and that there's a long horizon of work for that rig. So we want to contract it was one to two years in duration, but we want to have good visibility and work beyond that. Now, what I'd say is that with the LNG project coming on right now in Canada, we are expecting additional rig demand to meet the requirements of that project.
Kevin Neveu: And that's why we're targeting kind of something like one or two rigs. We think the market can probably handle. And perhaps we're like, maybe it can handle a third or fourth rig rule. We'll take it one by one. Okay.
Kevin Neveu: And then just still in Canada, believe CWC, some non-utilized rigs. Let's be outlook on those going back to work. So there fleet is primarily what a classified as tele double rigs. Those are generally shallower rigs that are triples and maybe only deeper than some of our super singles. They're commonly used in central southern Alberta and Saskatchewan. It's an area that precision hasn't had a lot of focus in the past. We've been really focused on the resource plays, the conventional heavy oil and the mountaineek.
Kevin Neveu: But we'll certainly bring the CWC team on ranks us to see how they've worked, you know, they've been very effective in the winter season. They've had often all of those rigs running through the winter, all six rigs running quite commonly. So, you know, to see us running all 60 WC rigs and maybe pulling through a few more of the precision telly doubles would be a very good outcome. And we think that the sales team from CWC can bring some strong market intelligence on the market segment for us.
Luke Lemoine: Okay, I think one word real quick on the US side. That you said you had 44 rigs operating and some could be reactated later this year. You know, we've seen momentum, you know, the inverse count last few weeks, especially on the Permian, just on a daily basis. Where do you think kind of your rig out could be, maybe, you know, six months from now or three to six months in the US?
Luke Lemoine: Just kind of based on conversations you're having and what you're seeing. Yeah, you know, I think we'll be at a fresh budget year come January and certainly we've already got customer educations that will be more very explain to work. You know, we're playing that against a couple of these large acquisitions that have been announced recently between Exxon and Chevron. You know, everyone knows that, you know, three plus two equals four not five.
Luke Lemoine: So it's going to be a slight reduction with those transactions. But other ENTs right now they're looking to replace ducks and kind of get back into ensuring they can sustain production. It does feel like Rick counts are moving up next year. Whether that's 50 or 75 rigs is a bit hard to project. But if we picked up our share of that and what we see in our pipeline right now, adding the. The eight rigs are operating right now with the WC. We're going to have a rig count, you know, back in the low 60s pretty quickly. Okay, perfect, thanks Kevin.
Unknown Attendee: Great, thank you.
Kurt Hallead: Our next question comes from Kurt her lead with benchmark. Your light is open. Hey, good afternoon. Hey, Kevin. I know you guys referenced here on the press release and your commentary about a potential doubling of profitability in the international market. Is that, you know, it looks like you're adding what, one plus rig, you know, one and a half two rigs on average, you know, going into next year. So it doesn't seem like it's going to be all volume driven per se. So is there a significant step up in kind of day rate and cash margins you expect from these rigs that you're going to be bringing online?
Kevin Neveu: So Kurt, there's a couple things there. We're going to average a little bit less than six rigs this year and the next year we'll average eight for the full year. The two rigs that we're adding are higher margin than the other rigs that are running on average. And we also incurred a bit of cost reactivating these last two rigs that we'll work on next year. So mixing all of that together, we think that an increase in 50%.
Kevin Neveu: Now that's a 50% increase. It's not a doubling in EBITDA. It's just a 50% increase in six days with the debt for probability. Okay, that's great. Appreciate that clarity. And then Kevin, kind of follow up for you as you referenced the increased term contract dynamics happening, you know, in Canada and 27 rigs now on on term contract. You know, Christopher Ballet, you know, in the next one the two years given the dynamics around, you know, LNG and heavy oil as you met reference. What do you think that 27 could become?
Kevin Neveu: You know, I have to preface everything with macro. You know, the macro could affect everywhere all the time. But assuming that macro doesn't have some, you know, message shift like a pandemic or another war. But but we're dealing with the Canadian market as it's today with Trans Mountain pipeline coming on and the coastal gasoline project and then likely follow on approval of phase two for LNG Canada. So for running 30 rigs today, that could be as much as mid 30s three or four years down the road.
Kevin Neveu: It could even be a low 30s just by the next year. So we could see that rig count go from 30 to 32 or 33 next year. And, you know, up beyond that could be 35 or it could be 40 rigs kind of down the road. I don't think we're building new rigs. I think we've got opportunities to upgrade existing rigs like we did for the one regular moving to Canada in January the first.
Kevin Neveu: You know, to give you a sense of the capital needs for that, we could probably upgrade one of our older SER rigs to a full super-stack for the range of 10 to 15 million dollars, far less expensive than building a new winterized rig. So I don't think we would need a ton of capital just here in Rick County Canada to go up quite a bit if the LNG projects continue as they look and have you all continue to remain strong. That's great. Really appreciate the color. Thank you.
Keith Mackey: Our next question comes from Keith McKee with RBC Capital Markets. Your line is open. Hi, good afternoon. First question is just on the US. Now, Kevin, we know that your rig count over the last year or so had been more private company weighted and you talked about adding six public companies this year and increasing your share with two.
Kevin Neveu: Just curious, what do you think is the right customer mix for PD and the US in terms of public private and what do you think needs to happen in order for you to get there? Yeah, Keith, I think that sort of changes with time a little bit. I do think that as U.S. LNG exports start to ramp up in 2024 and 2025, we might be a little less worried about private equity style ENP companies that they're drilling for gas if there's a stronger LNG export market.
Kevin Neveu: If I look back at FY 2020, FY 2021, having that private company exposure and gas exposure was excellent for precision. Now, at this point in time today, having more public company exposure, having exposure to the majors, supermajors, having more oil exposures, what we're targeting, and we're delivering on that. It's not, you know, we can't make these changes in a week or two, it takes a quarter, two quarters, three quarters.
Keith Mackey: But our customer mix at the end of this year will look vastly different than it did at the beginning of the year, and I really pleased the progress our sales team is making on that. Yeah, I got it. Appreciate the color.
Carey Ford: And maybe one for Kerry. What are you seeing in terms of maintenance capEx per rig or maintenance capEx per day? I guess more specifically on your U.S, fleet. Has there been much inflation from that 5000 a day level we used always quote or where things trending there? Yes, so there has been inflation. We've quoted on prior conference calls that the main capital cost per day was trending closer to 2000. Now it's closer to the mid-2000s, but I would point out that that includes drill pipe replacement.
Carey Ford: And then a lot of cases we are getting customers to pay for access where I'm drill pipe. And so it's showing up as a higher cost in maintenance capEx, but then we're recouping it in margin. Got it. Okay, so drill pipe and some other things. What are besides a drill pipe? What have been kind of the big drivers in terms of the maintenance capital number increasing? So it would be mud pumps, mud pump maintenance, engines, top drive, all the critical components on the rig.
Carey Ford: The repair costs have gone up. If you think about RNM, you've got consumable components. When you do repairs, which have a little bit of inflation in them, and then you have labor. So labor's up across the board, and that's what's driving it. Yeah, got it. And just one last one. On any activations that you might see in the U.S. Are we talking about any substantial capital requirements to bring any of those rigs back or they all pretty, pretty warm still?
Carey Ford: Like they not much maintenance capital, we might have a little bit of operating expense. And if there's upgrades associated with the reactivations, there would be some upgrade capital. But you make the correct point that a lot of these rigs were working six months or a year ago. And they're not going to be the same type of reactivations that we had to put forward at the end of 21, beginning of 22. Okay, thanks very much.
Carey Ford: Our next question comes from Karl Pereira. Steve, what your line is open? Afternoon all. I just want to start on the margin front in the U.S. So it sounds like some of the costs there are going to reoccur in Q4. You know, is there anything transitory that is in both Q3 and Q4? Or you know, in the event that the that the recount in the U.S, doesn't increase, is that kind of a reasonable run rate going forward just as from your last call.
Carey Ford: I mean, your rig count in the U.S, is down a little bit, but the margin outlook is quite a bit lower. Right, so I think that they will, the cost will trend down a bit more in Q1 regardless of whether we increase our recount. If you think about it, if you have a lower recount, you're absorbing a bit more fixed cost, but also if you have a high maintenance cost on a rig, you know, if you have a critical component that needs to be replaced, it just shows up more, or it's more prevalent in the average operating cost if you're running fewer rigs.
Carey Ford: And so we've had a few of those where we just had a higher iron and cost on a particular rig, and it just shows up a little bit more in the daily operating cost because of it. So we do think that some of, there's a bit of transitoring cost in there and we should see that trending down a bit more if you want.
Carey Ford: Okay, got it. And then coming back to a shareholder returns, you talked about it a little bit, and there's obviously a few different ways that activity can go next year, but free cash flow, you know, should be pretty strong in any reasonable scenario. I mean, from your standpoint is that, you know, you maybe think about paying down, call it $150 million of debt or something in that range and should have a lot left over and then you think about growth, CapEx, and kind of put the rest in the buyback.
Carey Ford: Yes, so we'll put forward our capital allocation target to the beginning of next year. I think in general, you're, you're thinking about it right correctly called the, you know, we will continue our debt reduction schedule. We will have capital allocation towards share buybacks. And then I would look at our growth capital, the same way that we would always look at it. We're going to look for opportunities to spend upgrade capital, match the contract where we get that capital paid back into the extent that there's opportunities to do that in the market will pursue it.
Carey Ford: Got it. Thanks. And you've done a few of these bulletons now. How do you think about further consolidation just as a part of the overall PD strategy? You know, I think we've demonstrated over the past couple of years that we can be opportunistic, we will. But really clearly, it's not one of our top three strategic priorities. So I don't think we're going to pivot and all of a sudden become highly acquisitionally focused.
Carey Ford: We like the stability of the strong balance sheet, but I carried you to the end of that. Sure, it's important to note that when we executed the high Arctic acquisition, we were able to remain committed to our debt reduction target for 2021 and 2022. And if you look at what we're, what we can make it on this conference call that we're going to complete the CWC acquisition and still meet our debt reduction targets for this year, it shows you where our priorities are to get the balance sheet in order.
Carey Ford: And we're in a favorable place right now where we've got some flexibility where we can do some of these tough in acquisition. But debt reduction is still going to be the number one on the more folks of the company for the next year or two.
Carey Ford: Got it. Okay, that's all for me. Thanks. I'll turn it back.
Unknown Attendee: It's pretty cool.
Waqar Syed: Our next question comes from Waqar Syed with ATB Capital Markets. Your line is open. Thank you.
Carey Ford: Carey, do you expect shortfall revenues in Q4? Yes, they'll be similar to what we reported in Q3 in that kind of $6 million range, US. And when to the fall off, is Q4 going to be the last quarter for those, or do you expect them next year as well? If we might have a little bit at the beginning of next year, but the bulk of this level of IBC revenue will fall off and keep for after a few years.
Carey Ford: Okay.
Carey Ford: And then, you know, as the CWC rigs get on the payroll in next year in the US, how would those impact your daily operating costs and daily regrets? I think it's a little bit too early to talk about how that can impact our daily operating margins and rates. We're planning to close the acquisition here in the next couple of weeks and we'll be on your own fleet.
Carey Ford: When do you expect US margins to bottom? Well, there, there, there could be bottoming right now. We're not seeing much of a much of a change from Q3, Q4. It just depends on whether the rig count continues to trend up and continue on.
Unknown Attendee: Okay.
Kevin Neveu: Yeah. Well, Carbite, I might enter that kind of focus on what you model for rig count next year, but if you're modeling your rig count to move up in Q1, then I think that reached the margins of bottoms. That's good to hear.
Kevin Neveu: And then Kevin, you know, you touched upon big mergers that are happening and then, you know, it was mentioned in one case that they would be looking at these four-mile type lapels and some other companies have talked about those as well. What type of rig would be required to drill that? I imagine not every super triple rig can do that. There may be, you know, even a further subset within super triple that would do that.
Kevin Neveu: So maybe could you talk about like what exactly what type of equipment would be required on a rig? Yeah, a little bit. I can. So we've drilled some three-mile ladders. We've actually drilled a couple of four-mile ladders. They didn't shell replaced, not the deeper place. But anytime you extend the length of the well or the vertical depth of the well, either one, you're increasing the required hook load capacity for the rigs.
Kevin Neveu: You need to have the mass has to either be strong enough, you're increasing the amount of pipe you need to build a rack in the mass. So you have to increase the rocking capacity of both the rocking board and the substructure to support that pipe. And now you've got more pipe, there's more weights or everything has to support that weight. And then because you're drilling farther and you're adding more pipe in the ground, you need more hydraulic horsepower.
Kevin Neveu: So typically going from two pumps to three pumps or going from 1,600 to 2,000 horsepower mud pumps. So most of these rigs that in our fleet All of these changes for us are kind of bolt-ons. We can bolt-on a mast upgrade, we can bolt on a rocking capacity upgrade, we can slide in a third pump, slide in a fourth generator. So the rig doesn't become obsolete, but these are capital increases. So to add a third pump of the fourth generator is over a million dollars to upgrade the mast capacity they had a more pipe, might be in our case, might be less than a half million dollars. If you want to do all of these things together for one of our rigs, it's probably going to rain today. We're working three to five million.
Kevin Neveu: And the other component is the top drive usually has to have a higher torque capacity. So there's a bit of work to do in the top drive.
Unknown Attendee: Great.
Unknown Attendee: Thank you very much.
Unknown Attendee: That's all I have.
Unknown Attendee: Great.
Unknown Attendee: Thank you, Waqar.
Sean Mitchell: Our next question comes from Sean Mitchell with Daniel Energy Partners. Your line is open. Thanks, guys, for taking my question here. You guys have got the three rigs and sawty, the fourth and fifth rig in Kuwait.
Kevin Neveu: Any thoughts around exploring other international markets in the Luke Hit Canada and US, but we haven't really talked about are there other opportunities international that you guys are looking at any color you can add. Sean, we've been clearly focused on maximizing our footprint in Kuwait and sawty. So for sure those two countries, we've been bidding around the Gulf. We think we can support rigs in Qatar, Bahrain, you know, maybe Abu Dhabi places like that from the base of operations we have either in Saudi or Kuwait and our regional offices in Dubai.
Kevin Neveu: So we think the entire Gulf region is open to us. We're not looking really aggressively outside the Gulf. You know, we have had inquiries from Argentina. We've had inquiries from Central Africa. I'm not anxious to see us, you know, in six or seven different countries around the world, but if we had a one off chance to put it really somewhere in a really good day rate, we'd look at that.
Sean Mitchell: Okay, thank you. Thanks, Sean.
Unknown Attendee: And I'm not showing any further questions at the time.
Lavonne Zdunich: I'd like to turn the call back over to Levant for any closing remarks.
Lavonne Zdunich: On behalf of the team here of precision, I'd like to thank people for joining us today, and that concludes our comment call. Thank you.
Unknown Attendee: Well, ladies and gentlemen, this does include today's presentation. You may now disconnect and have a wonderful day. Thank you.